Judging by the new townhouse development at the corner of Princess and Albert streets, you'd be forgiven for thinking you're in downtown Toronto or Montreal, not the infamous Queen's University student ghetto in Kingston.

But these three-storey, red-brick townhouses, with rooftop patios and built-in barbecues, were developed here by Varsity Properties for a reason: They're the new face of student housing.

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“Students these days are choosing to live in accommodations like they had back home, with nice bathrooms and a new kitchen with good appliances,” A. J. Keilty, president of Varsity Properties and member of the Queen's class of 2002, says during a recent tour of a 30-unit development in the final stages of construction. “They don't want a 100-year-old building in bad condition. Bad housing is no longer a badge of honour.”

Granite countertops and stainless steel appliances. Full bathrooms shared by only two people. WiFi. Washer and dryer. Twice monthly cleaning service for bathrooms, kitchens and other common areas. It's how more and more students want to live now, and Mr. Keilty and his partners, all Queen's class of 2002 grads, are happy to help them.

Formed in 2003 with three former roommates, Varsity Properties owns about $30-million worth of real estate in Kingston and houses about 400 tenants in its various properties. But with $70-million in its development pipeline, the company is expanding within Kingston and to Oshawa and Guelph, hoping to woo students at the University of Ontario Institute of Technology and the University of Guelph, respectively. It expects to have 1,200 beds in Ontario by the start of the 2014 school year.

The growth of Varsity Properties might make the student housing business seem easy to tackle, but student apartments are much harder to manage than conventional apartments. You've got first-time renters who don't know how to change a fuse, let alone a light bulb. They enter and exit their homes numerous times a day – which adds to wear and tear – and they have more guests, more frequently, than conventional renters. They also all move in and out at the same time, and the units turn over almost every year. For a lot of property management companies, it's too much work. But for those who put in the effort, it's worth it, according to Derek Lobo, CEO of Rock Apartment Advisors Inc.

“If you got the same yield from student housing and from apartments, you'd probably just buy apartments, because they're much easier to manage,” Mr. Lobo says.

To illustrate his point, Mr. Lobo points out that a four-bedroom townhouse near Vancouver Island University in Nanaimo, B.C., would rent to a family for about $1,200. But if the same unit is rented to students “by the bed” – each resident signs a separate lease for his or her own room – a landlord can charge $450 per bed and get $1,800 for the same apartment.

“That extra $600 comes with the brain damage of managing students, but you get paid well for it,” Mr. Lobo said. While Varsity Properties stands out as one of the few off-campus, dedicated student housing operators in Canada, it's small potatoes compared to what's happening in the United States and what might soon transpire here.

“The boom in student housing started in the U.S. about 10 or 15 years ago, when there were probably 10 or 12 companies that were doing student housing,” says Melinda Farmer, regional vice-president at Canadian Campus Communities, a subsidiary of the publicly traded American Campus Communities, which owns 140 properties and 90,000 beds across the United States.

According to Ms. Farmer, there are more than 100 student housing operators in the United States now, but as their growth slows, they might look to move northward, like her company has done.

“You're seeing such phenomenal growth in enrolment in universities in Canada right now and the on-campus resources just aren't there to help all the students who need housing,” says Ms. Farmer, whose company has three Canadian properties and a total of 1,600 beds in Calgary and Hamilton. “So the purpose-built student housing is becoming more of a necessity.”

Mr. Lobo, whose business involves selling apartment buildings in Canada, can attest to that. According to Statistics Canada's most recent data, college and university enrolment in Canada increased by 18 per cent between the 2004-05 school year and the 2009-10 school year. Mr. Lobo's sales of student housing buildings have increased in tandem with those numbers, such that by 2011, one-third of his transactions were in student housing. And in the first quarter of 2012, he did $215-million worth of transactions in that asset class.

“It will be interesting to watch this whole business evolve,” says Neil Downey, equity analyst with RBC Capital Markets. “The question is… is there the ability to have something more grand with a national owner and an outfit that can actually deliver new product, then continue to own it and ultimately aggregate a portfolio of $500-million worth of assets or more and that could be listed in the context of the Canadian capital markets?

“It's an open-ended question and my guess is we're still a few years away from that.”

THE NEW FACE OF STUDENT HOUSING

A former bank tower in downtown Montreal close to the McGill University campus was recently converted into student housing. It’s now called Varcity 515, located at 515 Ste. Catherine St. W. Each apartment houses four or five students in equal-sized bedrooms. Rent ranges from $739 to $899 a bedroom, per month, for a 12-month lease.

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